U.S. Inflation Remains Contained Amid Fed Patience on Rates

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Piedmont Capital, Finance, Loan, Mortgage
Piedmont Capital, Finance, Loan, Mortgage

A key measure of U.S. inflation was little changed in January while the broader gauge slowed on lower energy costs, underscoring the Federal Reserve’s recent decision to be patient on raising interest rates.

Excluding food and energy, the so-called core consumer price index rose 0.2 percent from the prior month and 2.2 percent from a year earlier, Labor Department data showed Wednesday. The monthly pace matched the median estimate of economists. The broader CPI was unchanged from December, below forecasts, while the 1.6 percent annual gain was the smallest since June 2017.

The data suggest inflation remains around the Fed’s 2 percent target, with prices getting a lift from steady wage gains. Fed officials have signaled a pause on raising rates amid global growth risks and headwinds from trade.

Even so, Treasury yields and the dollar rose after the report amid some hints that core inflation could be picking up. The latest data brought the three-month annualized increase to 2.65 percent, the fastest since March. If such acceleration is sustained, the Fed could have more reason to reconsider its rate pause.

Analysts said the data show inflation pressures are steady — with potential to pick up — though remain relatively muted. Bank of America Corp. economist Joseph Song said the report “doesn’t really change our outlook” for core inflation of 2.1 percent this year. Jim O’Sullivan of High Frequency Economics wrote that the “trend in core remains tame, but it is still up slightly in the past year.”

A separate Labor Department report on Wednesday illustrated how consumers are getting more purchasing power from falling energy prices: average hourly wages, adjusted for inflation, increased 1.7 percent in January from a year earlier, the biggest increase since mid-2016, reflecting the slowdown in the main inflation gauge.

Read more on Bloomberg

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